In recording its budgetary accounts in its governmental funds at the beginning of the fiscalyear, a municipal government would: A . Debit appropriations control. B . Credit appropriations control. C . Credit encumbrance control. D . Debit encumbrance control.
The correct answer and explanation is:
The correct answer is: A. Debit appropriations control.
Explanation:
When a municipal government records its budgetary accounts in its governmental funds at the beginning of the fiscal year, it formally recognizes the budgeted amounts for revenues and expenditures. One key step in this process is recording the appropriations, which represent the legal authorization for spending.
The appropriations control account is used to track the budgeted amount of expenditures. At the beginning of the fiscal year, the government debits appropriations control to record the total amount it has authorized to spend during the year. This debit increases the appropriations control account, reflecting the budgeted expenditure authority.
Simultaneously, the government will credit estimated revenues control to reflect the budgeted revenue expected during the year. This shows the planned inflows of resources. Also, the government will credit a budgetary fund balance account or a similar account to balance the entry if estimated revenues and appropriations do not match.
This journal entry sets the stage for monitoring actual expenditures and revenues against the budget. It provides a way to control spending by comparing appropriations to actual expenditures and encumbrances throughout the fiscal year.
In contrast, the encumbrance control account is used to record commitments related to purchase orders or contracts, representing amounts reserved for future expenditures. When the government issues a purchase order, it debits encumbrance control and credits budgetary fund balance or appropriations control, reflecting the commitment of funds.
Therefore, at the beginning of the fiscal year, when the budget is adopted and recorded, the focus is on the appropriations control account, which is debited to show the authorized spending limit. This entry is essential for budgetary control and legal compliance in governmental accounting.
In summary, the beginning-of-year budget entry in governmental funds includes a debit to appropriations control, reflecting the total authorized expenditures for the fiscal year.